IUIF - The Rise Of Industry (Lesson)
Rise of Industry
Two individuals best exemplify the boom of 19th century industrialization: John D. Rockefeller and Andrew Carnegie.
John D. Rockefeller
John D. Rockefeller began as bookkeeper for a grain company in Cleveland, Ohio. His frugal lifestyle led him to save money to invest in the up and coming market of oil refining. Rockefeller’s initial company began by transporting these products. Eventually, Rockefeller believed the process could be more cost efficient by creating a barrel production company for his oil transportation. He further cut costs by buying the means necessary to make the barrels and transport them to his factory. By creating or buying the means of production for oil, Rockefeller utilized the concept of vertical integration.
In vertical integration an individual or business will buy or create all the means of production for a product. In Rockefeller’s case, he bought out or created the industries involved for the production, transport and storage of oil. In this process he was able to be more efficient and cut his costs drastically. As his costs were cut, Rockefeller’s profits increased. He used their lower costs to provide a lower priced product to beat his competition. He undersold his competition and the competitors went out of business. As competitors went out of business, Rockefeller absorbed them into his company, Standard Oil. Eventually, Rockefeller controlled the vast majority of oil refining in the United States. He used all of his companies to form the Standard Oil Trust. With a trust or a monopoly the owner of a business or the business itself no longer has any competition. Without competition, the business can establish the price of its goods without challenge. Trusts and monopolies work to benefit the organization they represent and not the consumer of the product.
Andrew Carnegie
Andrew Carnegie’s life is a “rags-to-riches” story that exemplifies the American dream. An immigrant to the United States from Scotland, Carnegie and his family settled in Pennsylvania where they led a hard life. Carnegie began working as a teenager in a railroad yard. Carnegie rose to the role of superintendent of the Pennsylvania Railroad through a strong work ethic. Carnegie used his accumulated wealth to invest in steel, eventually founding Carnegie Steel.
He built massive steel plants in Pittsburgh, Pennsylvania and hired employees who were experts in steel production. One of his most famous hires was Henry Bessemer of England, creator of the Bessemer Process. The process called for air to be forced into the steel and impurities were filtered out of the molten steel resulting in a cleaner, lighter, stronger, and cheaper material. Carnegie believed this process would revolutionize steel production and his gamble paid off. Carnegie Steel was set to boom.
Much like Rockefeller, Carnegie utilized his less costly product to undersell his competition and grow his company through vertical integration. Carnegie controlled the mines from which the mineral ore was extracted, the processing ore into steel and the transportation from the mines to the factories and the factories to the consumer. With such practices, Carnegie Steel became the first billion-dollar company in United States history.
Carnegie and Rockefeller also used their fortunes for philanthropic efforts. Both men used their vast wealth to fund schools and various other education, medical, social and religious endeavors. Carnegie established nearly 3,000 public libraries to provide access to information for all people. His donations and Carnegie Libraries from the 19th century still impact Americans today.
Rise of Industry Review
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